Lear Corp. surges on Icahn's bid

Top shareholder looks to buy out remaining stock

SAN FRANCISCO (MarketWatch) -- Lear Corp.'s shares surged as much as 15% Monday, rallying after the auto-parts supplier said billionaire financier and top shareholder Carl Icahn has made an offer to buy all of the company's outstanding stock.

Lear's stock finished up $3.97 at $38.64 after notching a 52-week high of $39.88 earlier in the session. The $36-a-share offer from Icahn represents a 3.8% premium over the stock's Friday closing price.

Icahn, through his management group, currently holds nearly 12 million shares of Southfield, Mich.-based Lear
LEA, -1.19%
which amounts to 17.8% of the total, according to Thomson Financial. He bought into the company with a $200 million stake in October, when the stock was trading below $25 a share. See full story.

Since then the shares have jumped almost 60%.

Under the terms of the recent proposal, Chairman and CEO Bob Rossiter, along with senior management, would remain on with the company.

But the plan is not without opponents.

After the closing bell, Pzena Investment Management LLC said it fired off a letter to Lear's board expressing "strong opposition" to Icahn's intentions.

Pzena, which holds a 10.1% stake in Lear, said it was alarmed about a sale that might severely undervalue the company, and asked the board to solicit other offers.

"Our analysis suggests that earnings are likely to recover to $4 per share over the next few years from consensus analyst estimates of $2 per share for 2007. Consequently, we believe the company's value to be closer to $60 per share," Pzena said in a letter to Lear's independent directors.

Lear, a leading supplier of car seats, lost $645 million, including restructuring costs, in the fourth quarter, while sales fell 2.7% to $4.28 billion.

High yield analyst Shelly Lombard, who covers the automotive industry for bond research firm Gimme Credit, said she should have seen the bid coming.

"We liked Lear's stock but thought it was fully valued at $30," she wrote in a note to clients. "Obviously Mr. Icahn disagrees and that's good for stockholders."

Calyon Securities analyst Joseph Amaturo upgraded Lear to hold from sell following the news and said he expects the broader supplier sector to react positively to the offer.

When Icahn made his first move to buy into the company, Amaturo told investors to "aggressively" sell their positions.

The offer triggered a rally in the sector. Notable advancers included American Axle & Manufacturing
AXL, -3.55%
up 7.3% to $23.99, and Visteon Corp.
VC, -0.70%
up 2.6% to $8.55.

Last week, Icahn acquired a stake in Motorola
MSI, -0.21%
and pressed for a seat on the board, news that sent shares of the world's No. 2 mobile-phone maker rallying. See full story.

Like the rest of the auto-parts segment, Lear has had to deal with lower production from its top North American customers. Depressed conditions in the auto market have sent several companies into bankruptcy, including Delphi Corp.
DPHIQ
the biggest supplier in the U.S.

Delphi's also been getting attention from investor groups looking to cash in on the downtrodden sector. Appaloosa Management and Cerberus Capital Management are offering to invest $3.4 billion in the former General Motors division. See full story.

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